Japanese yen under pressure

The Japanese yen has started the trading week with slight losses. Currently, USD/JPY is trading at 105.61, down 0.21% on the day.

Dollar pushes yen close to 106

The US dollar continues to make inroads against the Japanese yen. USD/JPY lost ground late in 2020, but the pair has rebounded in the new year. The pair gained 1.35% in January, its best month since November 2019, and has climbed close to 1 per cent so far in February. On Friday, USD/JPY touched a high of 105.76, its highest level since mid-October. If the upswing continues, we could see the pair punch across the 106 line later this week.

On Friday, US nonfarm payrolls posted an anemic gain of 49 thousand, missing the estimate of 85 thousand. True, this could be considered a rebound from the previous reading of -140 thousand, but investors were unimpressed and sent the US dollar broadly lower to end the week. Overshadowed by the weak Nonfarm Payrolls report was the sharp drop in the unemployment rate, which fell from 6.7% to 6.3%. The unemployment rate is currently at its lowest level since April. Still, the US labor market is weak, a reflection of the slow recovery that is taking place, as the country struggles with the resurgence in Covid-19.

Japan will start the week with a data dump of tier-2 events, but there are two releases that are significant. Average Cash Earnings has been mired in negative territory since April, and analysts are braced for a soft reading of -4.7%. On the inflation front, the Producer Price Index hasn’t managed to post a gain in 10 months, and the trend is expected to continue, with a street consensus of -1.6%. In the US, there are no major releases until Wednesday, with the release of CPI reports for January.

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USD/JPY Technical Analysis

• USD/JPY is putting pressure on resistance at 105.90, which is protecting the 106 level. The next resistance line is at 106.42
• There are support levels at 104.74, followed by support at 104.10

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